Production improving at Tangguh LNG, but demand down

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 3 -- Indonesia’s BP PLC-led Tangguh liquefied natural gas facility is running at 70-80% of capacity on its two trains that are designed to produce at least 7.6 million tonnes/year of LNG.

"It's going well; we continue to see volumes grow," said Andy Inglis, head of BP exploration and production. Undisclosed problems at its production units resulted in lower production last year at the LNG plant (OGJ Online, Sept. 4, 2009).

BP Indonesia, which operates the Tangguh facility, last summer said it would temporarily shut down the plant to resolve problems encountered since its start-up earlier in the year.

“We are planning to temporarily shut down Tangguh Train 1 to rectify a number of initial problems identified during the start up phase of the plant,” said Nico Kanter, head of BP Indonesia, who expected the work to last for “a number” of weeks (OGJ Online, Aug. 13, 2009).

Last December, Raden Priyono, chairman of Indonesia’s upstream oil and gas regulator BPMigas, said Tangguh block would likely to ship 116 cargoes of LNG in 2010, including 28 cargoes to China, 24 to South Korea, 55 to the US West Coast, and 9 to Japan.

However, Priyono said Tangguh was expected to ship only 16 cargoes in 2009 compared with its original target of 56 after the BP Indonesia-led consortium temporarily shut down the liquefaction plant in July due to technical problems.

News of improved performance coincides with an announcement that Korea Gas Corp. cancelled an LNG purchase agreement from the Tangguh project.

“The deal with Kogas has been cancelled due to the economic situation in South Korea, which has not improved," said a BPMigas official. "We will seek another possible buyer of the 1 million tonnes/year of LNG,” said the official, who added, “We can't produce LNG without a buyer.”

Analyst IHS Global Insight said the Kogas cancellation “is a very significant blow to the Tangguh project, which the Indonesians have been viewing as key to defending their global LNG market share from an even steeper decline than that already experienced.”

However, the analyst noted that in protracted negotiations with Kogas, the Indonesians appeared to price themselves out of the market.

Indonesia’s pressure on Kogas to renegotiate a higher price “strained relations,” and “in a climate where Kogas is looking to slash its import commitments to the South Korean market, Tangguh was high on the company’s list of suppliers to face the drop,” the source said.

Prior to the cancellation by Kogas, Tangguh had five long term supply contracts: CNOOC for 2.6 million typ for 25 years; Posco for 550,000 tpy for 20 years; K-Power for 600,000 tpy for 20 years; Sempra for 3.7 million tpy for 20 years; and Tohoku Electric Power for 125,000 tpy over 15 years, starting in 2010.

BP has a 37.16% interest in Tangguh, while China National Offshore Oil Corp. holds 13.9%, MI Berau BV 16.3%, Nippon Oil Exploration Ltd. 12.23%, KG Companies 10%, LNG Japan Corp. 7.35%, and Talisman Energy Inc. 3.06%.

Contact Eric Watkins at hippalus@yahoo.com.



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